Resolution of Tax Disputes in the EU – Part 2: Potential Criticisms on Fundamental Rights Issues Leading to Non-Frequent Use of the EU Mechanism for the Resolution of Tax Disputes
By Francesca Pengo
The present article constitutes the second part to the previous article ‘Resolution of Tax Disputes in the EU’, further elaborating upon Directive 2017/1852 on tax dispute resolution mechanisms in the European Union [2017] (Dispute Resolution Directive) and its conceivable critiques on fundamental rights concerns such as fair trial guarantees. Accordingly, this article will briefly introduce the taxpayers’ rights under the Dispute Resolution Directive before focusing upon the core of the criticisms revolving around the right to a fair trial, and taxpayer participation to proceedings which will have the inevitable effect of leading to the sporadic use of the dispute resolution mechanism for the resolution of tax disputes contained within the Dispute Resolution Directive.
Taxpayer rights under the Dispute Resolution Directive
As was highlighted in my previous article, the Dispute Resolution Directive constitutes a major progress, in terms of international tax treaty dispute resolution, in effectively laying down the procedures for the resolution of tax disputes.[1] Remarkably, in terms of subject matter and scope of an international tax dispute resolution instrument, the Directive explicitly mentions the taxpayers’ rights and obligations for the first time.[2] Therefore, by explicitly acknowledging the rights of the taxpayer, specifically the right to a fair trial and the right to conduct business,[3] the Dispute Resolution Directive expands upon the fundamental rights as contained in the European Convention on Human Rights (ECHR)[4] and the Charter of Fundamental Rights of the European Union (EUCFR).[5] Provided that the Directive refers to a dispute resolution mechanism for tax disputes, the right to a fair trial and the right to an effective remedy are hence most significant to the present discussion as they encompass the taxpayers’ participation in the Directive’s dispute resolution procedure.[6]
The Dispute Resolution Directive guarantees the right to a fair trial where the taxpayer is granted access to an independent tribunal,[7] whereby all guarantees of independence are satisfied through the formation of the Advisory Commission (AC), independent from the competent authorities and the affected taxpayer: a proper independent tribunal in the context of the right to a fair trial.[8] The right to an effective remedy is equally guaranteed by the institution of the AC through the degree of involvement of the taxpayer and the control retained over the proceedings and their development therein.[9] On a whole, the Directive’s procedure upholds the right to a fair trial and to an effective remedy as guaranteed by the EUCFR to a larger extent than how these same rights are respected under the current MAP and arbitration procedures.[10]
Potential criticisms
Despite ‘affected persons’[11] have a high level of control of dispute resolution proceedings through MAP and the Union Arbitration Convention,[12] Pit argues that they are not formally involved as parties in the proceedings.[13] Perrou, nevertheless, sustains that the Rules of Functioning for the AC or Alternative Dispute Resolution Commission (ADRC)[14] consent Member States to allow a higher level of taxpayer participation in the procedure and to grant wider protection of taxpayer rights overall. [15] It follows that, even if the taxpayer is not formally a party according to the Directive, he/she, nevertheless, in practice has enough control over all the stages of the procedure amounting to ‘participation’ in the context of fair trial guarantees. Nonetheless, Perrou also argues that the fair trial guarantee requiring that the taxpayer has access to an independent court or tribunal that can decide the case in a binding manner, is unclear.[16] It is uncertain, in fact, whether Member States are obliged to provide for the taxpayer’s participation as an appropriate party, in itself, to the procedures provided for in the Dispute Resolution Directive. If such onus exists on Member States, as Perrou explores, Member States would thus have to provide for it in their national legislation when implementing the Dispute Resolution Directive.[17]
Impact of CJEU case-law on taxpayer participation to proceedings under the Dispute Resolution Directive
In order to determine whether such obligation for Member States exists, it is necessary to consider the impact of recent Court of Justice of the European Union (CJEU) case-law on taxpayer participation in the Directive’s procedure mechanism. Austria v Germany, on the interpretation and application of the Double Taxation Convention (DTC) on the basis of Article 273 TFEU, was the first time in which the CJEU was called on to give a binding interpretation of a provision included in a DTC between two Member States.[18] The Court articulated that disputes on the interpretation of double tax treaties between Member States have an objectively identifiable link with the subject matter of the Treaties.[19] Whether the judgment stretches so far as to impose an obligation on Member States to provide for a mechanism to submit disputes arising under their international agreements to the Court, the Court disappointingly neglected to examine.[20]
Shortly after the formal adoption of the Dispute Resolution Directive, the Court in Achmea ruled that, by accepting the jurisdiction of the BIT arbitral tribunal for disputes referred to it, Member States exclude a range of disputes that may potentially involve the application and interpretation of EU law from the EU judicial system as well as from the Court’s jurisdiction.[21] As such, the arbitration clause contained in the BIT was incompatible with EU law, as the effectiveness of EU law may be undermined and the autonomy of EU law may be adversely affected.[22] Accordingly, the EU’s judicial system is inherently incompatible with the possibility of Member States establishing, in their bilateral relations, a parallel dispute settlement mechanism which may concern the interpretation and application of EU law.[23] Nevertheless, the possibility of creating a European tax treaty arbitration court where the CJEU replaces the Dispute Resolution Directive’s current arbitration system cannot be excluded, mainly given that, in the post-Achmea era of dispute resolution, the creation of such a European court might amount to a requirement under EU law.[24]
In conclusion, the Dispute Resolution Directive has undeniably extended the fundamental rights of taxpayers beyond those afforded in the ECHR and EUCFR. Nonetheless, criticisms revolving around the right to a fair trial, and taxpayer participation to proceedings, exist and could potentially lead to the sporadic use of the dispute resolution mechanism for the resolution of tax disputes contained within the Dispute Resolution Directive. This appears more likely in light of Austria v. Germany and Slovak Republic v. Achmea; suggesting a new-found obligation on Member States to ensure that disputes concerning the interpretation and application of their bilateral DTCs are dealt with by court-like bodies or tribunals themselves, or that are dealt with by bodies not qualified as such, but are subject to judicial review, in the course of which fundamental EU law concerns can be assessed and preliminary questions may be referred to the CJEU.[25]
[1] Council Directive (EC) 2017/1852 on tax dispute resolution mechanisms in the European Union [2017] (Dispute Resolution Directive) OJ L 265/1 recital 1.
[2] ibid art 1.
[3] ibid recital 9.
[4] Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights, as amended) (ECHR) arts 6(1) and 13.
[5] Charter of Fundamental Rights of the European Union (EUCFR) [2012] OJ C 326/391 art 47.
[6] K Perrou, ‘Taxpayer Rights and Taxpayer Participation in Procedures Under the Dispute Resolution Directive’ [2019] 47(8)-(9) Intertax 715, 716.
[7] Dispute Resolution Directive (n 1) arts 6 and 7.
[8] Perrou (n 6) 718.
[9] see Dispute Resolution Directive (n 1) arts 5, 7, 11(4), 15(4), 16(3).
[10] Perrou (n 6) 718.
[11] Dispute Resolution Directive (n 1) art 2(1)(d).
[12] Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (Union Arbitration Convention) [1990] OJ L 225/10.
[13] H Pit, Dispute Resolution in the EU: The EU Arbitration Convention and the Dispute Resolution Directive (Doctoral Series Vol 42, IBFD 2018) s 32.2.
[14] Dispute Resolution Directive (n 1) art 11.
[15] Perrou (n 6) 718.
[16] ibid.
[17] ibid.
[18] Case C-648/15 Republic of Austria v Federal Republic of Germany [2017] ECLI:EU:C:2017:664.
[19] ibid paras 25-26.
[20] J Luts and C Kempeneers, ‘Case C-648/15 Austria v. Germany: Jurisdiction and Powers of the CJ to Settle Tax Treaty Disputes Under Article 273 TFEU Article’ [2018] 27(1) EC Tax Rev. 5, s 4.2.
[21] Case C-284/16 Slowakische Republik v Achmea BV [2018] ECLI:EU:C:2018:158 paras 56, 58.
[22] ibid para 59.
[23] Opinion 1/17 Request for an opinion by the Kingdom of Belgium (Opinion of Advocate General Bot) [2019] ECLI:EU:C:2019:72 para 105.
[24] Perrou (n 6) 720.
[25] ibid 722.